nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒02‒19
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Welfare Effects of Third-Degree Price Discrimination in a Differentiated Oligopoly By Takanori Adachi; Noriaki Matsushima
  2. The Impact of Potential Labor Supply on Licensing Exam Difficulty in the US Market for Lawyers By Mario Pagliero
  3. Advertising and R&D: Theory and evidence from France By Phillipe Askenazy; Thomas Breda; Delphine Irac
  4. Competition and Trust: Evidence from German Car Manufacturers By Leonardo Felli; Johannes Koenen; Konrad O. Stahl
  5. Price Setting in Retailing: the Case of Uruguay By Fernando Borraz; Leandro Zipitria

  1. By: Takanori Adachi; Noriaki Matsushima
    Abstract: This paper studies the relationship between horizontal product differentiation and the welfare effects of third-degree price discrimination in oligopoly. By deriving linear demand from a representative consumer's utility and focusing on the symmetric equilibrium of a pricing game, we characterize the conditions relating to such demand properties as substitutability and complementarity for price discrimination to improve social welfare. In particular, we show that price discrimination can improve social welfare if firms' brands are substitutes in a market where the discriminatory price is higher and complements in one where it is lower, but welfare never improves in the reverse situation. We verify, however, that consumer surplus is never improved by price discrimination; welfare improvement by price discrimination is solely due to an increase in the firms' profits. This means that there is no chance that firms suffer from a "prisoners' dilemma," that is, firms are better off by switching from uniform pricing to price discrimination.
    Date: 2011–01
  2. By: Mario Pagliero (Department of Economics and Public Finance "G. Prato", University of Torino)
    Abstract: Entry into licensed professions requires meeting competency requirements, typically assessed through licensing examinations. In the market for lawyers, there are large differences in the difficulty of the entry examination both across states and over time. The paper explores whether the number and quality of individuals attempting to enter the profession (potential supply) affects the difficulty of the entry examination. The empirical results show that a larger potential supply leads to more difficult licensing exams and lower pass rates. This implies that licensing partially shelters the legal market from supply shocks.
    Keywords: occupational licensing, legal market, bar exam, minimum standards, entry regulation
    JEL: L4 L5 J44 K2
    Date: 2011–02
  3. By: Phillipe Askenazy (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Institute for the Study of Labor - IZA, Banque de France - Banque de France); Thomas Breda (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Delphine Irac (Banque de France - Banque de France)
    Abstract: This paper exploits a unique panel of 59,000 French firms over 1990-2004 to investigate the interactions between R&D, advertising and the competitive environment.The empirical findings confirm the predictions of a dynamic model that complements results known in static frameworks. First, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Second, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D.
    Keywords: advertising ; innovation ; competition ; Lerner
    Date: 2010–12
  4. By: Leonardo Felli (London School of Economics, CEPR); Johannes Koenen (University of Bonn); Konrad O. Stahl (University of Mannheim, CEPR)
    Abstract: We explore the determinants and effects of trust relationships between upstream suppliers and downstream producers. Using unique survey data on individual supplier-buyer relationships in the German automotive industry, we show, by means of different measures of supplier-buyertrust, tha thigher levels of trust mitigate relationship-specific underinvestment in a classical hold-up situation. Moreover, contrary to the extant literature, we show that higher levels of supplier’s trust are reflected in the buyer’s choice of a more competitive procurement strategy among potential suppliers.
    Keywords: Trust, Hold-up problem, Competition, Specific investment, Suppliers, Car manufacturers, German automotive industry
    JEL: D86 L22 L62
    Date: 2011–02
  5. By: Fernando Borraz (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Leandro Zipitria (Universidad de Montevideo and Universidad de San Andrés)
    Abstract: We use a rich and unique dataset of 20 million daily prices in groceries and supermarkets across the country to analyze stylized facts of the behaviour of consumer prices. Our findings are as follows: i) The median duration of prices is little over 2 months. Therefore, retail prices in Uruguay are less sticky than in the US but stickier than in the UK. ii) We do not find evidence of a seasonal pattern in the likelihood of price adjustments. iii) The frequency of price adjustment varies positively with expected inflation for the food and personal care product categories. However, in the alcohol and soft drink categories we find that firms increase the percentage points of the adjustment and not its frequency. iv) The probability of price change in the first day of the month is seven times higher than in any another day. v) The probability of a price change is not constant over time.
    Keywords: Retail; micro data; prices; price volatility; sticky prices.
    JEL: E31 D40 L16 L81
    Date: 2011–01

This nep-ind issue is ©2011 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.